Manager optimism at three-year high

Fund managers are more optimistic about the global economy than they have been since December 2005, according to the Merrill Lynch Fund Manager Survey for March: there is “a growing belief among investors that the worst will soon be behind us,” according to the company.

Their brighter outlook for the future was driven for a second month by increased confidence in China.

However, managers remain risk-averse and reluctant to increase equity exposure.

The global survey, conducted by Bank of America Securities and Merrill Lynch, encompassed 213 fund managers who manage a total of $533 billion (£383 billion).

The composite growth indicator, which combines economic and corporate profit views, stands at zero, the same as in December 2005 after a rise that began late last year.

On China, a net 1% of managers said the country’s economy would worsen in the year ahead, compared with a net 70% a month ago. Sentiment about America also improved.

Respondents said they had reduced their equity holdings in the last month, with a net 41% now underweight the asset class and a net 48% underweight in bank shares. Bonds reached an all-time high, with a net 26% overweight.

Nevertheless, the managers surveyed became more optimistic on equities, with a net 42% saying they believe equities are undervalued – almost double February’s figure of 24%.

Exposure to defensive sectors decreased slightly, with a net 30% overweight pharmaceuticals in March against 37% in February. Technology exposure increased to 28% overweight the sector compared with 15% in February.

A net 4% are overweight emerging markets equities, compared with a net 4% underweight last month. But respondents remained bearish on Japan and the eurozone: a net 40% are underweight eurozone equities and 39% underweight Japanese stocks.

The survey’s Risk & Liquidity composite index of risk appetite fell to 28 from 31 in February, remaining below the average of 40 seen since the index started in 2001.

The survey was conducted by Bank of America Securities- Merrill Lynch Research with assistance from TNS, a market research company, from March 6-12 – a period coinciding with rebounds in the Dow Jones industrial average and FTSE 100 index after a period of prolonged falls.